Exxaro receives R601m for unused Medupi coal

EXXARO Resources received R601m from Eskom in the six months to end-June for coal the utility had contracted to buy for its new Medupi power station, of which it then had delayed delivery.

That amount is expected to rise to around R1.3bn for the full year to end-December, according to Exxaro chief financial officer Wim de Klerk. He added the amount could be slightly higher if Eskom does not start to take coal from November as per the latest supply agreement.

The payments being made by Eskom can be viewed as penalties in terms of “take or pay” agreements such as those negotiated between Transnet and the coal exporters.

In setting its tariffs Transnet insists the coal exporters guarantee volumes of coal to be railed. If that coal is not provided on schedule the exporters still have to pay the railage charges.

So far, the start-up of the first generating set at Medupi had been delayed by almost two years.

The construction delays meant Exxaro would not start receiving revenues from coal sales as originally planned, which put the group under severe financial pressure.

Exxaro has invested R10.2bn to expand its Grootegeluk colliery to supply the coal.

In July, an Eskom spokesperson said Eskom had negotiated an option to commence coal deliveries late during the 2013 calendar year or early in the 2014 calendar year.

Asked about this yesterday at the presentation of Exxaro’s results for the six months to end-June, Mr de Klerk commented, “some of that tonnage has been lost for good. We are working with Eskom to understand how the remaining coal volumes could be recovered over the next two years.”

Mr de Klerk declined to specify how much coal was supposed to be delivered this year in terms of the supply contract with Medupi.

The 4,800MW station will burn 14.6-million metric tonness of coal annually when fully operational. It will consist of six, separate 800MW generating sets each of which will burn nearly 2.5-million tonnes of coal annually.

Asked what would happen in the event of further delays in the commissioning of the remaining generating sets, Mr de Klerk replied: “Medupi will have the capacity to compact and stockpile up to 30million tonnes of coal on site”.

Exxaro CEO Sipho Nkosi said Exxaro’s earnings would remain “sensitive in the short-to-medium term period up to 2016” because of the long lead times at the Medupi expansion and the development of the Mayoko iron-ore mine in the Republic of Congo.

He pointed out that the planned ramp-up of Mayoko would be delayed because management decided to finalise the full mining convention with the Congo government instead of doing it in stages.